BE CAREFUL OF LOW-RATE INTRODUCTORY MORTGAGE RENEWAL OFFERS. a CAUTIONARY TALE.
When mortgage maturity approaches, and it's time to renew your mortgage, you will receive a Renewal Agreement in the mail.
The Renewal Agreement is often a very thick document that displays current interest rate offers together with mortgage terms.
Most borrowers do not understand all of the terms and more than 50% of borrowers do not know how to interpret the offers being given in terms of dollars and cents.
One example of this is an experience I recently had with a client who had her original mortgage with CIBC. Her CIBC mortgage was up for renewal and she locked into another five years. She mis-read the renewal agreement completely. What she failed to realize was that her low five-year rate was only an introductory rate for the first six months followed by a much higher interest rate for the rest of the five year term.
This meant that after the first six months she would end up paying almost one percent more than what other prime lenders were offering.
This was a very costly mistake and one that could have been avoided if she understood her mortgage renewal terms.
As always, mortgage renewal and mortgage maturity is an opportunity to seek a better interest rate and negotiate better terms. It's a time to save money.
Please contact me today if you would like to discuss your mortgage renewal.
The Canadian Government has indicated that it wants to make home ownership more affordable for first-time buyers. All of this after being pressured by big banks who are losing money they can't lend and a fair portion of the next generation of the middle class that can't seem to get in on a piece of the real estate market.
Perhaps the next course of action will be that they change the maximum amortization on high-ratio mortgages to 30 years instead of the current 25 years. But do this 'help' first-time home buyers or those who have less than 20% down?
This article from Better Dwelling argues that increasing the amortization does NOT, in fact, make home ownership more affordable. When you do the math, increasing the amortization simply means more interest payments and substantially more debt since the loan is now set out over 30 years as opposed to 25. Ideally, in any mortgage, we want to move to shorten the amortization so we pay less interest.
When it comes to affordability, what increasing the amortization does do is make monthly payments smaller which makes the cost of living easier - BUT this is not to be confused with more affordable.
In reality, what the Government banks on (no pun intended) is the probability of borrowers not questioning the logistics of their policies, and that they will only be enticed by the monthly payment, therefore, inadvertently taking on massive debt to help 'fix' the eliteness system of obtaining profits.
In my opinion, in an effort to help first-time buyers, right now, the stress-test should be eradicated and people should focus on reducing and eliminating their unsecured debt and other fruitless monthly obligations.
By: Sarah Colucci
Senior Mortgage Agent, Lic. M14000929